Oh, What A Lovely Shell Game

LOUIS RUKEYSER

NEW YORK -- Well, let`s see, when was the last time the Washington press corps was so overwhelmingly enthusiastic about an economic measure as it is right now about ``tax reform``?

Why, it was, golly gee, fully 15 years ago, and the government action that inspired such media euphoria then was, of all things, President Nixon`s conversion to wage and price controls.

Even the buzzwords were the same: ``fair and simple.`` Wages and prices were going up; therefore, the ``fair and simple`` way to deal with them was with a sweeping measure that would cut across all the old ways of doing business.

Three years after the imposition of that similarly popular and ``overdue`` action, inflation had more than tripled and the country was in its worst recession in 40 years. When will we learn that when a politician says ``simple,`` he means simple-minded; and when he says ``fair,`` button your wallet pocket and head for the next county? With that eerily familiar background in mind, let`s see what truly has emerged from that fun-loving Senate Finance Committee.

First, it`s not a tax cut. Surprised? Many people will be, because the implication in all the rosy publicity is that it`s a splendid reduction. The bill actually tries to perform the Washington miracle of being, simultaneously, a tax cut and ``revenue neutral`` -- i.e., not a tax cut. Aren`t politicians marvelously ingenious when they try to pull the fiscal wool over our eyes?

The primary, though by no means the only, flimflam involves offsetting an apparent reduction in taxes on ``people`` with a whopping increase in taxes on ``business``--whose taxes, presumably, by Washington logic, are paid by some gorilla in a cave in Wyoming. Alas, though, on this planet all taxes in the end must be paid by ``people,`` and in his more honest days Ronald Reagan would have been the first to point this out.

The politicians also plan to eliminate your deductions six months before they give you any rate reductions. Translation: an outright tax increase next January, which could retard the economic pickup that had been expected then.

And they plan to abandon any semblance of ``fairness`` by retroactively applying punitive taxation to deals that were entered into in good faith under the tax laws Congress then decreed. Does anyone wonder why long-term business and investment planning is a joke?

Speaking of hollow, has anybody noticed that a Trojan tax horse is under construction? That improbable ``reformer,`` Rep. Dan Rostenkowski, D-Ill., openly chortles about the ease, once you`ve eliminated all those deductions, of capturing huge amounts of new revenue simply by raising the rates.

The overpraised new bill ignores other economic realities: that not all tax changes are equal in their effects on the government`s revenues; for example, every reduction in the capital-gains rate, without exception, has resulted in more, not less, revenue. But the bill not only fails sensibly to reduce the capital-gains tax; it steeply increases it. Simultaneously -- at a time when the U.S. savings rate is a national disgrace, with ominous implications for our future -- the bill savages the paltry inducements that now exist for the average citizen to save for retirement.

Nobody loves a genuine tax cut more than I do. But this not only is not a tax cut, it`s an anti-growth political deception. When the media smoke clears, neither taxes nor spending are really going to have been reduced. But, oh, what a lovely shell game it will have been.